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4 Mistakes Millennials are Making with Our Retirement Accounts

My name is Kyle A. Davis, and I’m a Millennial.

The word “Millennial” is more of a descriptor of young adult culture rather than a well-defined group. The Pew Research Center puts out a best guess as to exactly how old our generation is, pointing to anyone born between 1981 and 1996.1 By that measure, in 2018, the eldest of us are around 37 years old. At 34, I clock it near the oldest of the bunch. We grew up during the dot-com boom where it seemed that tech was the primary driver of the modern economy, and our parents probably told us how important it is to invest to get wealthy. Many of us went through elementary school before the internet was even a thing, and we were the last generation to have a pre-YouTube adolescence! Many of us also began our working lives during the financial crisis and had a hard time finding work after incurring huge amounts of student debt. To say these experiences may have…shaped our view of the economy would be a fair statement!

Aside from being an older Millennial, I have built a career in the financial services and retirement planning business for eight years now. I work primarily with people older than myself (Baby Boomers, Gen X/Y), but I also have my fair share of fellow Millennial clients as well! I have noticed firsthand that we could be making better decisions when it comes to debt, spending, and most of all investing. I point the finger straight back at myself, or more specifically my industry. Resources are out there to help those who are looking, but the financial industry has always been this big evil intimidating thing. I’m here to tell you flat out – it’s not, and we can all benefit from a few general points to make sure we are heading in the right direction for financial success. Whether you are a Millennial or not, make sure you are avoiding these common investment mistakes that my generation is making!

1. Cash Heavy

The biggest mistake may be not having a retirement account at all. This matters a LOT, because investing and earning interest works best over a long period of time, uninterrupted. A study from Bankrate, a financial services company, finds that many Millennials are heavily invested in cash. That means they have lots of money in savings accounts and CDs, not so much in investments.2 This strategy is understandable given how the markets rocked the economy in 2008. Savings is vital, but there’s a point where it’s excessive. Having a more diverse portfolio that earns more interest is the main driver of retirement planning. You won’t make much progress with savings and CD’s alone. In fact, your money will automatically lose value due to inflation.

2. Fear of the Markets

The fear of stock market volatility is a rational fear. However, it is often extremely counterproductive. Sticking to the side of stability will keep Millennials (and everyone else, really) from creating a robust retirement fund that will actually meet our needs later on. While a short-term hiccup can and will cause havoc with an investment portfolio, staying invested over the long haul with a market-based portfolio can produce a good return if the investor has a goal in mind and a plan to reach that goal. It also doesn’t hurt to work with a professional…just saying.

3. Blind Investing

Other research from financial services companies shows that Millennials are less likely to periodically review our investment portfolio or their 401(k) after we’ve initiated them. We often don’t look to readjust portfolios for market changes. With youth on our side, Millennials have the time to do more with our money. We can take more risks, which could mean market investments instead of cash. We can reallocate funds annually or when we start to earn more money. A diverse portfolio can help mitigate risk so that one wrong move won’t ruin plans. Our age also gives us time to make a plan and invest towards a goal, whether it’s a kid’s college or retirement. A plan is something that someone who does blind investing hasn’t created.

4. Getting the Full Benefit

If you’re not part of the “freelance economy” as many Millennials are, you likely have an employer who will contribute to your 401(k), matching your contribution up to a point. Some employers will match your entire contribution or just a percentage of it. However, some Millennials aren’t taking full advantage of the employer’s matching contribution. If the employer matches your contribution to your retirement account at 100% and you aren’t contributing as much as possible, you could be missing out on literally thousands of dollars over time. Even without an employer plan, there are great retirement accounts such as Roth IRAs that anyone with income can contribute towards and enjoy long-term tax benefits on investment growth.

Strategize with a Financial Advisor – That’s what we’re here for!

Over a short period of time, the Millennial generation has seen great turmoil in the economy and in the world. The beginnings of our adult lives has been a bumpy ride, to say the least. We have seen more changes than our boomer predecessors have, and we continue to experience some uncertainty. Having a sound financial plan for retirement may help ease some concerns. Whether you’re starting out in the job market or have a strong career going full steam, it helps to discuss investment strategies and retirement plans with a financial advisor.

Here is a simple way to let me know you have someone I should be talking to.

1 http://www.pewresearch.org/fact-tank/2018/03/01/defining-generations-where-millennials-end-and-post-millennials-begin/
2 https://www.bankrate.com/investing/financial-security-july-2018/

About the author: Kyle A. Davis is a Chartered Financial Consultant® and president of Integrity Financial Group in Orlando, FL. He is a Florida native and an advocate for financial literacy and practical money education. When not assisting clients in planning for retirement, he creates educational videos on financial wellness on his YouTube Channel - https://www.youtube.com/user/financialplannerinfl

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